Binance, the world’s largest crypto exchange, mistakenly held collateral for some of the crypto assets it issued in the same wallet as its customers’ funds, Bloomberg reported, citing an unidentified Binance spokesperson.
The exchange issues 94 so-called Binance-peg tokens (B-Tokens) and stores nearly half of the collateral in the Binance 8 cold wallet, wrote the Bloomberg.
The wallet contains more tokens than the amount of B-tokens issued. Since the tokens are supposed to be hedged 1:1, according to Bloomberg, the excess indicates that the hedge is mixed with clients’ tokens.
“Collateral assets were previously placed on this wallet by mistake and were referenced accordingly on the B-Token Proof of Collateral page” the spokesperson told Bloomberg. “Binance is aware of this error and is in the process of transferring these assets to dedicated margin wallets. Assets held on the stock exchange were and continue to be insured at a 1:1 ratio” – said the spokesman.
When the collateral is pooled and used for trading, the pool is locked and clients or asset owners may not be able to withdraw their funds, Laurent Kssis, a crypto trading consultant at CEC Capital, argued in a letter to CoinDesk.
“This essentially means that the clients’ funds and the collateral used are not separated” Ksis said. “This can lead to the owner either not being able to call the funds or to the lack of liquidity on the stock exchange. If Binance were regulated, this would be an essential part of their internal controls.”
Binance came under fire after the collapse of the FTX crypto exchange. The stock exchange trust in the auditing company Mazars in December “reserve certificate” he tried to increase it with his report. The report showed that Binance’s bitcoin reserves were overinsured.
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